Over the past decade, publicly-funded programs like Medicaid and the State Children's Health Insurance Program (formerly SCHIP, now called CHIP) have played an important role in providing health coverage to millions of low-income children and their parents. These programs have reduced the rate of uninsured children by one-third in a decade. In large part, these programs have worked effectively because states have made strong efforts to do outreach and to simplify enrollment and renewal procedures. In 2005, 29 million children were enrolled in Medicaid at some point during the year. CHIP provided coverage to 7 million children by 2007, just 10 years after its establishment. In February 2009, Congress and President Obama passed the Children’s Health Insurance Program Reauthorization Act (CHIPRA), which is expected to provide coverage to millions of uninsured children.

Medicaid and CHIP Overview

Medicaid is the nation’s major source of health coverage for low-income individuals. Medicaid is operated jointly by the federal government and states, and currently finances health and long-term care services for over 58 million people. To qualify for Medicaid, individuals must meet financial criteria and also belong to one of the groups that are “categorically eligible” for the program: children, parents of dependent children, pregnant women, people with disabilities, and the elderly. Non-disabled adults without dependent children are typically not eligible for Medicaid. States must cover all children under age 6 with family incomes below 133% of poverty and children ages 6 to 18 with family incomes below 100% of poverty. Income eligibility thresholds for children are generally higher than for other groups. As a result, children account for almost half of all Medicaid enrollees. However, children represent only 17 percent of total Medicaid expenditures, demonstrating that per capita spending on children is the lowest among all beneficiary groups.

State Medicaid programs must cover early and periodic screening, diagnostic, and treatment (EPSDT) services for individuals under 21. These critical services include screening and early intervention services to promote healthy development, vision, dental, and hearing services, as well as the diagnostic and treatment services that are needed as part of the EPSDT screening process. Through EPSDT, Medicaid provides comprehensive coverage for children with a broad range of health needs. This benefit is particularly helpful for children with special health care needs.

To help extend health insurance coverage to even more low-income uninsured children, Congress built on Medicaid and established the State Children’s Health Insurance Program (CHIP) as part of the Balanced Budget Act in 1997. CHIP was created to provide coverage to uninsured children in families with income too high to qualify for Medicaid, but too little to purchase private or employer-sponsored insurance. At the time of the program’s inception, nearly a quarter of all low-income children were uninsured. Since that time, CHIP and Medicaid together have extended coverage to millions of previously uninsured children.

States can use CHIP funds to create a separate program, expand their Medicaid program, or adopt a combination approach. Like Medicaid, CHIP is a state-based program that is jointly financed by the federal and state governments. Under both programs, the federal government matches state spending for program beneficiaries according to an annually determined match rate. On average, the federal government provides 57% of the funding for Medicaid and 70% for CHIP. Distribution of CHIP funds across states is based on each state’s share of low-income and low-income uninsured children.

There are some notable differences between the programs. Medicaid is an entitlement program, in which all eligible individuals are guaranteed coverage. Medicaid also has no pre-set funding limit. CHIP however, is a block grant program with caps on federal funding. In the case of funding shortfalls, states can start waiting lists or control spending by limiting enrollment. Therefore, there is no entitlement for eligible.

There are some other important differences between Medicaid and CHIP. Under Medicaid, states are federally mandated to cover certain benefits, including EPSDT. Under CHIP, states with stand-alone CHIP programs are not required to cover EPSDT and have more flexibility over the benefits package for children. States also have more flexibility to charge families for services through cost sharing in CHIP.

There is strong evidence that health insurance for children improves their access to care. Uninsured children are more likely to have medical care delayed due to cost and less likely to have a usual source of care. As a result, uninsured children are more likely to experience avoidable hospital stays. Research shows that uninsured children are nine times more likely to be hospitalized for a preventable problem than other types of health problems. [1] Medicaid provides children with access to care that is comparable to that of children with private insurance. Studies show that parents with children enrolled in Medicaid and CHIP are highly satisfied with the coverage provided through the programs.

Despite the important achievements of Medicaid and CHIP, 8.9 million children remain uninsured. Most of these children are eligible for these public programs but are not enrolled. Enrolling these children in Medicaid or CHIP has been a priority for many policymakers and public health professionals, but the financing structure and levels have been the biggest challenges for the program. In the early years, states did not spend all of their available allotments; however, as programs matured and financing levels dipped in 2002, federal CHIP spending exceeded allotment levels. While most states were able to sustain their programs using unspent CHIP funds from prior years, several states faced funding shortfalls.

Reauthorization

The reauthorization legislation (CHIPRA 2009) extends and expands the State Children’s Health Insurance Program (now called CHIP). The Congressional Budget Office estimates that CHIPRA will provide coverage to an additional 6.5 million children in CHIP and Medicaid by 2013. About two-thirds of those enrolled (4.1 million children) would have otherwise been uninsured. Most of these children are currently eligible for Medicaid or CHIP and will benefit from increased funding, fiscal incentives and new enrollment simplification efforts. CHIPRA is expected to increase spending for children's coverage in Medicaid and CHIP over the next 4.5 years by $33 billion. These efforts are funded by a 62-cent-per-pack increase in the federal cigarette tax. Furthermore, the act replaces the formula used to calculate state funding, now relying on one that uses state’s actual and projected spending, increased by factors for inflation and child population growth.

CHIPRA 2009 establishes some new policies to improve coverage of low-income children by encouraging states to expand eligibility levels and simplify enrollment procedures. Major changes include:

• Legal immigrants - Previously, lawfully residing immigrant children faced a five-year waiting period for CHIP eligibility after moving to the U.S.; CHIPRA lifts this restriction and allows legal immigrant children to apply for CHIP without this waiting period.
• Bonus payments - A system of bonus payments provides fiscal incentives for states to enroll low-income children based on how far actual enrollment exceeds target levels. States must implement a variety of efforts to simplify eligibility to receive these bonus payments.
• Benefits - CHIPRA requires states to include dental care, and provides additional resources to states for mental health coverage and reducing barriers to providing care.
• Quality of care - CHIPRA also includes $225 million over 5 years for health quality initiatives including development of quality measures and electronic health records, in addition to establishing demonstration programs to combat obesity and develop information technology.

Discussion Questions

• What are the major changes to the CHIP program under the 2009 reauthorization?
• What are the major programmatic differences between Medicaid and CHIP?
• What policy choices does this pose for state and federal policymakers?
• What strategies have proven effective in reaching eligible but uninsured children?What lessons from CHIP’s history can be applied to current debates over national health reform?

* The poverty level was $22,050 for a family of four in 2009.

Acknowledgements: Prepared by Rebecca Eskin and Usha Ranji of the Kaiser Family Foundation.

Updated: June 2009

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